April 17 (Bloomberg) -- Treasuries rose, pushing 10-year
note yields to the lowest levels of the year, as signs of global
economic weakness and a renewal of concern that terrorism is
increasing in the U.S. fueled demand for the safest assets.

Benchmark yields extended the drop after the FBI said an
envelope addressed to President Barack Obama may contain ricin
and denied that any arrests had been made in the April 15 Boston
Marathon bombings. Stocks declined amid a Dow Jones report that
Bundesbank President Jens Weidman said the European Central Bank
may cut interest rates if the developments warrant it. Federal
Reserve Bank of St. Louis President James Bullard said a further
drop in inflation could prompt more bond buying.

“Risk sentiment is for risk-off right now -- it’s hard to
see how growth globally will be strong,” said Ira Jersey, an
interest-rate strategist in New York at Credit Suisse Group AG,
one of 21 primary dealers that deal directly with the Fed.
“It’s also because of what’s going on in Boston and what’s
going on in Washington. Some of the more current events have
accelerated our move.”

The U.S. 10-year yield fell three basis points, or 0.03
percentage point, to 1.70 percent at 5 p.m. New York time,
according to Bloomberg Bond Trader prices. It touched 1.67
percent, the lowest since Dec. 12. The 2 percent note due in
February 2023 rose 1/4, or $2.50 per $1,000 face amount, to 102
3/4.

“We’re looking at 1.60 percent in the next couple of
weeks,” Jersey said of the 10-year yield.

Stocks, Commodities

European stocks sank for a fourth day, led by commodity
producers, and the Standard & Poor’s 500 Index slid 1.4 percent
as industrial metals declined. Copper fell 3 percent while gold
rose for a second day after tumbling 9.1 percent on April 15.

“Stocks are coming off because everyone seems to see panic
in the central banks when people thought there would be
growth,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “This
is a reversal of the beginning of the year when people thought
higher rates were on the horizon, but there could be a rate cut
in Europe. Treasuries are following bunds higher.”

German 10-year bund yields fell five basis points to 1.23
percent.

U.S. government securities returned 0.8 percent in April
through yesterday, according to Bank of America Merrill Lynch
index data, exceeding the gain in the S&P 500 Index for the
first time since November.

Volatility Drops

Treasury volatility as measured by Bank of America Merrill
Lynch’s MOVE index was at 51.97 basis points today, just up from
51.93 basis points yesterday, the lowest level since Dec. 11.
The gauge, which tracks the outlook for swings in U.S.
government debt rates, has averaged 63.7 basis points in the
past year.

The spread between yields on 10-year Treasuries and
similar-maturity TIPS, a gauge of inflation expectations known
as the break-even rate, shrank to as little as 2.35 percentage
points today, the narrowest since Nov. 28.

The Fed’s Bullard said U.S. inflation has fallen too far
below the central bank’s 2 percent goal and a further drop could
prompt increased asset purchases.

“Inflation should be closer to target than it is and we
should defend the inflation target from the low side,” Bullard
told reporters today after a speech in New York. “If it doesn’t
start to turn around here soon, I think we’ll have to rethink
where we are in our policy.”

The U.S. will sell $18 billion of inflation-linked debt
tomorrow, following data yesterday that showed consumer prices
unexpectedly declined 0.2 percent in March.

Jobs Data

Fed policy makers have maintained purchases of government
and mortgage debt at $85 billion a month, including $1.484
billion in Treasuries maturing between February 2036 and August
2042 today, in a bid to spur growth and boost employment.

Applications for jobless benefits rose to 350,000 last week
from 346,000 in the previous period, according to a Bloomberg
News survey of economists before tomorrow’s Labor Department
report. Employers added 88,000 jobs in March, the least in nine
months, the department said on April 5.

The index of U.S. leading indicators is forecast to rise
0.1 percent in March, compared with 0.5 percent in February,
according to another survey before the figure is released
tomorrow.

Treasuries remained higher after the Fed in its latest
Beige Book business survey said the U.S. economic expansion
remained “moderate” amid gains in manufacturing, housing and
autos that offset weakness in defense-related industries in some
regions.

“You have some safe-haven support to the market, but the
market hasn’t raced higher,” said Larry Milstein, managing
director in New York of government-debt trading at R.W.
Pressprich & Co. “We’ve moved through 1.7 percent, but not
significantly so, which seems to signal that we are at the top
of the trading range. Investors should continue to trade the
range unless we break out of one side or the other.”